TMI Blog2017 (1) TMI 1471X X X X Extracts X X X X X X X X Extracts X X X X ..... of U.P. Even as per book value, cost of land determined and share profits determined between the parties and their capital contribution is so negligible, as it did not conform to even any normal business transaction entered into by a person of ordinary prudence, and, therefore, there existed all the facts and circumstances to show prima facie that entire transaction of contribution to partnership is a sham and fictitious transaction and an attempt to device a method to avoid tax. Even the terms and conditions of partnership fortify the above inference. In the present case, in the garb of entering into a partnership and taking recourse to some earlier laws, an attempt was made to avoid execution of a registered document which would have needed stamp duty to the State and, as a result thereof, there could have been an occasion for payment of tax under the Act, 1961. The requirement of registration needs consideration in the light of the fact that contribution of immovable property as partnership asset by a person is ''transfer' and has the effect of extinguishing or limiting rights and interest of the owner partner and, therefore, such a non-testamentary document is within the amb ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing aforesaid questions, it would be appropriate to have a bird eye view of relevant facts giving rise to present dispute. 5. Assessee, M/s Carlton Hotel Pvt. Ltd., Ranapratap Marg, Lucknow was lessee in possession of a ''Nazul' land, (measuring 364937 Sq.ft.) under the lease deed dated 31st March, 1943. Lease expired on 31st March, 1990. However, possession of land continued with Assessee. 6. In view of government policy for conversion of ''Nazul' into freehold, a sum of ₹ 8,94,94,944/- was paid and ''Nazul' land measuring 364937 Sq.ft. was converted into freehold vide Freehold Deed dated 31st March, 2002. The conversion rate comes to ₹ 245.234 per Sq.ft. 7. A portion of aforesaid land i.e. 10,000 Sq.ft. was sold by Assessee to M/s Sahara India Commercial Corporation Ltd. (hereinafter referred to as ''SICCL'), for a consideration of ₹ 1,23,94,000/-, vide sale deed dated 13.11.2003. It was mentioned in the said sale-deed dated 13.11.2003 that the amount paid towards conversion of land into freehold was actually paid by M/s Sahara India Housing Ltd. (now known as ''SICCL'). Assessee offered capita ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f accounts of Firm, as the value of capital asset , shall be deemed to be the full value of consideration received or accruing as a result of transfer of capital asset. Section 50C would not be attracted, as claimed by Assessee. Section 50C would be attracted only to those cases of transfer of immovable property where process of registration and payment of stamp duty, as per Stamp Valuation Authority is necessary. Transfer of immovable property by partners as contribution, as share capital, in the partnership Firm does not call for any registration for which stamp duty is required to be paid or assessed by any authority of State Government, nor was any such duty adopted or assessed by any authority of State Government. Reliance was also placed to Section 14 of Indian Partnership Act, 1932 (hereinafter referred to as ''Act, 1932'). Assessee asserts, when a partner contributed to the stock of firm, in the form of immovable property, no registration or document is necessary for such transfer. Interest of partner in a partnership asset cannot be regarded as a right or interest in immovable property within the meaning of Section 17 (1) of Indian Registration Act, 1908 (here ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l Pvt. Ltd. 05% iii. Shri I. Ahmad 05% 18. Capital contribution of three partners in the Firm is as under :- 1. M/s SICCL ₹ 1,36,37,700 (12%) 2. M/s Carlton Hotels (P) Ltd. ₹ 7, 81,96,735 (88%) 3. Mr. I. Ahmad Nil (0%) 19. Some of the terms and conditions of partnership deed which have been noticed by CIT(A) in its order dated 14.02.2008, may also be reproduced as under :- i) The share of the assessee in profits is only 5% (clause 12 of the deed). ii) Mr. I. Ahmad is the Managing Partner (clause 5) and not the assessee through its director. iii) Construction on the plot is to be carried out by M/s Sahara India Commercial Corporation Ltd. (clause 7). iv) No civil, criminal or financial liability of the assessee (clause 8). v) Business of partnership to be exclusively carried out by M/s Sahara India Commercial Corporation Ltd. (clause 12) vi) Bank account can be independently operated only by the other two partners ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g land or building or both, which will be required only when capital asset is registered under Registration Act, 1908 (hereinafter referred to as ''Act, 1908'). If payment of stamp duty for the purpose of transfer is not required, then there is no occasion to look into other conditions of Section 50C. It has also read Section 45 (3) in isolation and said that there is deeming fiction with regard to value of capital asset which has to be given full effect. Sri Mathur submits that Tribunal has not appreciated the matter in correct perspective. The element of fraud with Revenue, i.e. a cloaked transaction to evade Tax Liability has not been considered at all. It is a case of evasion of Tax and not avoidance by prudent tax management. 21. Sri Mathur, learned counsel for Revenue has also contended that Tribunal has committed a mistake in law by observing that Sections 50C and 45 (3) of Act, 1961 are mutually exclusive. He also contended, with regard to findings given by ACIT as well as CIT(A), that Assessee has adopted a device to evade capital gain tax by showing lower value of sale consideration in the books of Firm though actual market value of land is much higher. He ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r reason, it was termed as Nazul property . The reason being that neither it was acquired nor purchased after making payment. In the old record, we are told when they used to be written in Urdu, this kind of land was shown as Jaidad Munzabta . 4431. For dealing with such property under the authority of the Lt. Governor of North Western provinces, two orders were issued in October, 1846 and October, 1848 wherein after the words Nazul property its english meaning was given as Escheats to the Government . Sadar Board of Revenue on 20th May, 1845 issued a circular order in reference to Nazul land and in para 2 thereof it mentioned The Government is the proprietor of those land and no valid title to them can be derived but from the Government. The Nazul land was also termed as confiscated estate. Under circular dated 13th July, 1859, issued by the Government of North Western Provinces, every Commissioner was obliged to keep a final confiscation statement of each district and lay it before the Government for orders. The kingdom of Oudh was annexed by East India Company in 1856. It declared the entire land as vested in the Government and thereafter settled the land to various ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d have been owner of the land in 1528 AD when alleged that the disputed building was constructed by Babar through his Commander Mir Baqi, the concept sought to be canvassed is that law, whether Islam or Hindu Shastras, do not recognise any personal right of ownership upon immoveable property. The entire property within the suzerainty of the king belong to him, who had right to tax its subject in the form of tax or otherwise by realising share in the agricultural or other income in the immoveable property. The percentage of share may differ and that may not be relevant for our purpose. 4438. The second aspect of the matter is that since ancient time the right of ownership proceeded with possession and is recognized by the well known principle possession follows title . The individual right of ownership therefore was well recognized in the various personal laws and the only right the king had to acquire the land in known valid means, namely by purchase or gift etc. The obligation upon the king is to protect the subject and his property from enemies and for that purpose he used to raise revenue from the subject in the form of tax and/ or share from the income of the property etc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the above two principles. The above provisions had continued by virtue of Section 54 of Government of India Act, 1858, Section 20(3)(iii) of Government of India Act, 1915 and Section 174 of the Government of India Act, 1935. After the enactment of the Constitution of independent India, Article 296 now provides : Subject as hereinafter provided, any property in the territory of India which, if this Constitution had not come into operation, would have accrued to His Majesty or, as the case may be, to the Ruler of an Indian State by escheat or lapse, or as bona vacantia for want of a rightful owner, shall if it is property situate in a State, vest in such State, and shall, in any other case, vest in the Union. 4441. The Apex Court in Pierce Leslie and Co. Ltd. (supra) has considered the above principles in the context of sovereign India as it stands under its constitution after independence and has observed that in this country the Government takes by escheat immoveable as well as moveable property for want of an heir or successor. In this country escheat is not based on artificial rules of common law and is not an incident of feudal tenure. It is an incident of sovere ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ich one State can acquire sovereignty over the territories belonging to another State, and that the same result can be achieved in any other mode which has the effect of establishing its sovereignty. 4449. In Thakur Amar Singhji Vs. State of Rajasthan AIR 1955 SC 504, in para 40, the Court said : The status of a person must be either that of a sovereign or a subject. There is no tertium quid. The law does not recognise an intermediate status of a person being partly a sovereign and partly a subject and when once it is admitted that the Bhomicharas had acknowledged the sovereignty of Jodhpur their status can only be that of a subject. A subject might occupy an exalted position and enjoy special privileges, but he is none the less a subject ... 4450. In State of Rajasthan and Others Vs. Sajjanlal Panjawat and Others AIR 1975 SC 706 it was held that the Rules of the erstwhile Indian States exercised sovereign powers, legislative, executive and judicial. Their firmans were laws which could not be challenged prior to the Constitution. The Court relied on its earlier two decisions in Director of Endowments, Govt. of Hyderabad Vs. Akram Ali AIR 1956 SC 60, and Sarwarlal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... #39;). Section 2 and 3 thereto very specifically provide that provisions of Transfer of Property Act, 1882 (hereinafter referred to as ''Act, 1882') do not apply to Government land. Section 3 says that all provisions, restrictions, conditions and limitations ever contained in any such grant or transfer, as aforesaid, shall be valid and take effect according to their tenor, any rule of law statute or enactment of the Legislature to the contrary notwithstanding. Thus the stipulations in Lease deed shall prevail and govern entire relation of State Govt. and lessee. 28. After expiry of lease, if lessee continued in possession, he cannot ask for advantage of principle of holding over, recognized under Act, 1882, for the reason that his continued possession thereafter would become unauthorized, and in view of Section 2 of Act, 1882, shall not be protected by any provision of Act, 1882. 29. Assessee got lease deed executed in respect of the aforesaid land on 31st March, 1943 and got lease rights over property in dispute. A lease right is short of title or ownership since ownership vested in State of U.P. Lease expired on 31.3.1990. The status of Assessee qua such land ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion in the circumstances specified in sub-section (1) of Section 7 and a person shall not, merely by reason of the fact that he had paid any amount as rent, be deemed to be in authorised occupation. 2(e) public premises means any premises belonging to or taken on lease or requisitioned by or on behalf of the State Government, and includes any premises belonging to or taken on lease by or on behalf of-. (i) any company as defined in Section 3 of the Companies Act, 1956, in which not less than fifty-one per cent of the paid-up share capitals held by the State Government: or (ii) any local authority; or (iii) any Corporation (not being a company as defied in Section 3 of the Companies Act, 1956 or a local authority) owned or controlled by the State Government: or (iv) any society registered under the Societies Registration Act, 1860, the governing body whereof consists, under the rules or regulations of the society, wholly of public officers or nominees of the State Government or both: and also includes- (i) Nazul land or any other premises entrusted to the management of local authority (including any building built with Government funds on land ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in terms of Section 2(g) of Act, 1972. 37. It also said that any act on the part of DDA in respect of other communication would make no difference, since a Public Premises is to be dealt with by relevant statutory provisions including Act, 1971, Nazul Land Rules and DDA Act, 1957. Thus question-1 was answered by Court as under:- 30. Without examining the case in the proper perspective that the property in question being a Public Premises in terms of Section 2(e) of the Public Premises (Eviction of Unauthorised Occupants) Act, 1971 and that after expiry of lease period the original lessee has become unauthorized occupant in terms of Section 2(g) of the said Act in the light of relevant statutory provisions and Rules referred to supra and law laid down by the Constitution Bench of this Court in the Case of Ashoka Marketing Ltd. and Another (supra), the concurrent findings of the courts below on the contentious issue is not only erroneous but also suffers from error in law and therefore, liable to be set aside. 31.The grant of perpetual injunction by the Trial Court in favour of original lessee, restraining the DDA from taking any action under the said termination ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... unt, ''Nil' as on 31st March, 2002. 32. Land came to be validly possessed by Assessee only with execution of Freehold Deed on 31st March, 2002. In other words, Assessee being a ''lessee' under lease dated 31st March, 1943, ceased to have lease rights over land on 31.3.1990, and had no title during this period which vested in State of U.P. Even Lease rights came to an end on 31st March, 1990. Thereafter Assessee got title over land on execution of Free Hold deed on 31st March, 2002, i.e. Financial Year (hereinafter referred to as ''F.Y.') 2001-02 and A.Y. 2002-03. Thus Assessee got a valid and legal title over property in dispute only on 31st March, 2002 when deed for freehold was executed in favour of Assessee by State. Freehold conversion charges paid by Assessee were ₹ 8,94,94,944/-, (though as a matter of fact the said charges were paid on behalf of Assessee, by M/s SICCL). 33. Since land was acquired by Assessee, with valid possession and title, on the last date of Assessment Year 2002-03, value of aforesaid asset could have been disclosed in the accounts book of Assessee in the next F.Y./A.Y. 34. Market value of such property ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... urpose, it is sub-section (3) of Section 47 which is relevant and came to be inserted by Finance Act, 1987, w.e.f. 01.04.1988 which reads as under:- 47(3). The profits or gains arising from the transfer of a capital asset by a person to a firm or other association of persons or body of individuals (not being a company or a co-operative society) in which he is or becomes a partner or member, by way of capital contribution or otherwise, shall be chargeable to tax as his income of the previous year in which such transfer takes place and, for the purposes of section 48, the amount recorded in the books of account of the firm, association or body as the value of the capital asset shall be deemed to be the full value of the consideration received or accruing as a result of the transfer of the capital asset. (emphasis added) 42. The term transfer is defined in Section 2 (47) of Act, 1961 which reads as under:- (47) transfer , in relation to a capital asset, includes,- (i) the sale, exchange or relinquishment of the asset; or (ii) the extinguishment of any rights therein; or (iii) the compulsory acquisition thereof under any law; or (iv) in a case ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a non-resident from the transfer of shares in, or debentures of, an Indian company referred to in the first proviso, the provisions of clause (ii) shall have effect as if for the words cost of acquisition and cost of any improvement , the words indexed cost of acquisition and indexed cost of any improvement had respectively been substituted: Provided also that nothing contained in the second proviso shall apply to the long-term capital gain arising from the transfer of a long-term capital asset being bond or debenture other than capital indexed bonds issued by the Government : Provided also that where shares, debentures or warrants referred to in the proviso to clause (iii) of section 47 are transferred under a gift or an irrevocable trust, the market value on the date of such transfer shall be deemed to be the full value of consideration received or accruing as a result of transfer for the purposes of this section : Explanation.--For the purposes of this section,- (i) foreign currency and Indian currency shall have the meanings respectively assigned to them in section 2 of the Foreign Exchange Management Act, 1973 (46 of 1973); (ii) the convers ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ......... 46. In Chapter IV of Act, 1961 some additions were made as special provisions for different purposes. For our purpose, it is Section 50C, inserted by Finance Act, 2002 w.e.f. 01.04.2003, made as a special provision, for full value of consideration in certain cases. It reads as under : 50C. Special provision for full value of consideration in certain cases.-- (1) Where the consideration received or accruing as a result of the transfer by an assessee of a capital asset, being land or building or both, is less than the value adopted or assessed by any authority of a State Government (hereafter in this section referred to as the stamp valuation authority ) for the purpose of payment of stamp duty in respect of such transfer, the value so adopted or assessed shall, for the purposes of section 48, be deemed to be the full value of the consideration received or accruing as a result of such transfer. (2) Without prejudice to the provisions of sub-section (1), where- (a ) the assessee claims before any Assessing Officer that the value adopted or assessed by the stamp valuation authority under sub-section (1) exceeds the fair market value of the property as on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on's income of previous year in which such transfer takes place. 49. The first question would be, whether in the present case, when Assessee transfers his land by way of capital contribution and becomes a partner in the firm, does it result in transfer in terms of Section 2 (47) of Act, 1961 or the term ''transfer' has to be construed in the light of Act, 1882. 50. We find answer to this question in Sunil Siddharth Bhai Vs. CIT, [1985] 156 ITR 509. Therein, Assessee was a partner in a firm M/s Suvas Trading Company, a partnership firm constituted under a deed of partnership dated 27 September, 1973. Assessee, as its capital contribution to the firm, made over certain shares held by him, as capital asset. Book value of those shares shown in the account books was ₹ 1,49,849/-. However, when Assessee contributed shares to the firm, he revalued shares at market value of ₹ 1,60,279/- and credited the resulting difference of ₹ 10,460/- to his capital account. Assessing Authority while making assessment for A.Y. 1974-75, in respect of Assessee, did not include difference in the assessable income. CIT was of the opinion that difference between mark ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e that a partnership firm is not a distinct legal entity apart from partners, constituting it, and equally in law, the firm as such has no separate rights of its own in the partnership assets and when one talks of firm's property or firm's assets, all that is meant is property or assets in which all partners have a joint or common interest. 53. Court in Sunil Siddhartha Bhai (Supra) also held that in a genuine transaction, transfer of capital assets by a partner into partnership firm does not amount to sale. Relying upon an earlier judgment in CIT Vs. Hind Construction Ltd., [1972] 83 ITR 211 (SC), Court observed, when Assessee made over its machinery to the partnership firm, there was no sale and Assessee did not derive any income. Similar view was taken by Madras High Court in CIT Vs. Janab N. Hyath Batcha Sahib, [1969] 72 ITR 528 (Mad.) that when a partner introduces his property into a partnership firm as his contribution to its capital, the transaction does not involve a sale of the property. High Court referred to Section 14 of Indian Partnership Act, 1932 (herein after referred to as Act, 1932 ) and following observation was made :- When a partnership is f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hich he enjoyed in the asset before it entered the partnership capital. 56. Court in Sunil Siddharthbhai Vs. CIT (supra), in taking above view, also relied and referred to its earlier decision in Addanki Narayanappa Vs. Bhaskara Krishnappa, AIR 1996 SC 1300, wherein it was observed that whatever may be the character of property which is brought in by the partners when partnership is formed or which may be acquired in the course of the business of the partnership, it becomes property of the firm and what a partner is entitled to is, his share of property, if any, accruing to the partnership from the realisation of this property, and upon dissolution of partnership, to a share in the money representing value of the property. No doubt, since a firm has no legal existence, partnership property will vest in all the partners and in that sense, every partner has an interest in the property of the partnership. During the subsistence of partnership, however, no partner can deal with any portion of property, as his own. Nor can he assign his interest in a specific item of partnership property to anyone. His right is to obtain such profits, if any, as fall to his share from time to time, a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as held in Malabar Fisheries Co. Vs. CIT (supra). The partner gets, upon dissolution or upon retirement, realisation of a pre-existing right or interest. In this backdrop, Court said :- Therefore, what was the exclusive interest of a partner in his personal asset is, upon its introduction into the partnership firm as his share to the partnership capital, transformed into an interest shared with the other partners in that asset. Qua that asset, there is a shared interest. During the subsistence of the partnership, the value of the interest of each partner qua that asset cannot be isolated or carved out from the value of the partner's interest in the totality of the partnership assets. And in regard to the latter, the value will be represented by his share in the net assets on the dissolution of the firm or upon the partner's retirement. (emphasis added) 59. Court also drew a distinction between realisation of pre-existing right by the partner on dissolution of firm or retirement and when such partner brings in his personal asset into the partnership firm as his contribution to capital. In the former case, there is no transfer for the reason that his shared int ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... solution or on his retirement. Court held that it is not correct to hold that consideration which a partner acquires on making over his personal asset to the partnership firm, as his contribution to its capital, can fall within the terms of Section 48. Since section 48 is fundamental to the computation machinery incorporated in the scheme relating to determination of charge provided in Section 45, such a case must be regarded as falling outside the scope of capital gains taxation altogether. 64. Another aspect considered by Court is whether it can be said that any profit or gain has arisen to a partner, when it brings in his personal assets into firm as its contribution to capital . It was held that under Act, 1961, profit or gains must be understood in the sense of real profits or gains, on the basis of ordinary commercial principles on which actual profits are computed, a sense in which no commercial man would misunderstand, and this has been regarded as a principle of general application, recognized in Calcutt Company Ltd. Vs. CIT [1959] 37 ITR 1 (SC); CIT Vs. Bai Shirinbai K. Kooka[ 1962] 46 ITR 86 (SC); Poona Electric Supply Co. Ltd. Vs. CIT [ 1965] 57 ITR 521 (SC); CIT ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d resulted in any substantial change or not, has also to be examined. 68. One of the relevant aspects here is the year of charge . By depiction, ''income' under the head Capital gains is deemed to be the income of previous year in which transfer, i.e. vesting of title is fixed. Any income by way of capital gains is assessed in the assessment year corresponding to the previous year in which transfer takes place. A transfer does not take place merely because an agreement is entered into or consideration is paid thereunder in whole or in part. The words denote that a title in property has passed from transferror to the transferee. No transfer can be said to be effected until all formalities for vesting of title in the transferee are completed. Hence, it is the date of transfer which is relevant, so that the assessment year would be the accounting year during which a taxable income falls. 69. In relation to acquisition of land, it was held that on the date of publication of notification for acquisition, property vest absolutely in Government, hence, that is the date of transfer for the purpose of capital gains as held in G.M.Omer Khan Vs. CIT (Addl.), 1992 196 ITR ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssessed in any appeal or revision or reference before any authority or court, the Assessing Officer may refer the valuation of the relevant asset to a Valuation Officer in accordance with section 55A of the Income-tax Act. If the fair market value determined by the Valuation Officer is less than the value adopted for stamp duty purposes, the Assessing Officer may take such fair market value to be the full value of consideration. However, if the fair market value determined by the Valuation Officer is more than the value adopted or assessed for stamp duty purposes, the Assessing Officer shall not adopt such fair market value and shall take the full value of consideration to be the value adopted or assessed for stamp duty purposes. 37.4 This amendment will take effect from 1st April, 2003 and will, accordingly, apply in relation to the assessment year 2003-04 and subsequent years. (emphasis added) 72. Section 50C requires adoption of value or as per basic evaluation register, on the basis of which stamp duty is reckoned. Tribunal has excluded application of Section 50C and finds it sufficient to look into the declaration made by Assessee in the partnership deed about v ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... are satisfied the document has to be registered. It is no doubt true that once a partnership has come into existence, the stock whether immovable or movable, as narrated into share of individual partner in the partnership firm, such share of the partner in the asset of partnership which also have immovable property and assignment of such share does not require registration under Section 17 of Act, 1908. But here is a situation where partnership is being brought into existence wherein one of the partners contributes his entire immovable property as partnership stock and that is how transfer is made to the partnership Firm, consisting of more than one partners. Apparently contributing partner is limiting his interest in immovable property and creating interest of others therein. 78. A distinction has to be made about share of a partner in the assets of partnership which has immovable properties and its assignment of movable property. Where immovable property itself is put in the stock, reducing interest of a partner, owning property, and creating rights of other partners therein, it would be covered by Section 17 (1) (b) of Act, 1908. Here, we may refer to decision in B.T. Patil V ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oes not amount to a ''sale'. This proposition, we find unexceptionable. 82. In CIT Vs. Hind Construction Ltd., [1972] 83 ITR 211 (SC), Assessee entered into a partnership. As its share of capital, it transferred stock of machinery to partnership firm. Court held, when Assessee made over its machinery to partnership firm, there was no sale, and Assessee did not derive any income. This view has been taken by various High Courts, including this Court also in CIT Vs. Janab N. Hyath Batcha Sahib, [1969] 72 ITR 528 (Mad). Court held, when a partner introduces his property into a partnership firm as his contribution to its capital, the transaction does not involve a sale of property. Referring to Section 14 of Act, 1932, Court said, when a partnership is formed for the first time and one of the members of the partnership brings into firm's assets, they become property of the firm, not by any transfer, but by the very intention of parties evinced into the agreement between them, to treat such property belonging to one or more of the members of partnership as that of the firm. Similar view was taken by this Court in Dr. Kackkar Vs. CIT, [1973] 92 ITR 87 (All.), holding th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in an asset of equal value, it can be said that there is no transfer. It is the realisation of a pre-existing right. But the position would be different when a partner brings his asset into the partnership Firm as his contribution to its capital. An exclusive interest in it before it enters the partnership, is reduced on such entry into a shared interest. In Sunil Siddharthbhai Vs. CIT (supra), Court also observed that transfer of personal asset to partnership firm need not result in capital gains to such partner within the contemplation of Section 48 of Act, 1961 so as to attract Section 45 of Act, 1961. This is why Section 45 of Act, 1961 stood amended in 1987 by insertion of sub-section 3, but yet this aspect will depend on the fact that partnership firm is genuine, there is no sham or unreal transaction, and assets of the Firm represents a genuine intention to contribute to the share capital of the firm for the purpose of carrying on the partnership business. 85. In CIT Vs. H.H. Maharani Sethu Parvathi Bayi, [1998] 232 ITR 678, Court held , when such an issue is raised, Tribunal should have enquired into the real nature of transaction. It is the bounden duty of Tribunal to m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the tax-gatherer and his perhaps not no skillful advisers on the other side. There is a sense of injustice and inequality which tax avoidance arouses in the breasts of those who are unwilling or unable to profit by it. The ethics of transferring burden of tax liability to the shoulders of guideless, good citizens from those of the artful dodgers is per se objectionable. We live in a welfare State, whose finances are founded on the tax collected by State from its people. Tax must be paid in accordance with law. Law must be respected and honoured in words and spirit. No equity, no sympathy, no leniency is called for a person engaged by devoting not only substantial time and money of himself but by engaging other experts in the field to find out ways and means for shirking away from the responsibility of payment of tax. We should recognize that behind taxation laws, there is as much moral sanction as behind any other welfare legislation. It is a pretense to say that avoidance of taxation is not unethical and that it stands on no less a moral plane than honest payment of taxation. 89. The proper way to construe a taxing statute, while considering a device to avoid tax, is not to a ..... X X X X Extracts X X X X X X X X Extracts X X X X
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